Editors’ note: This article, first published in print during Sep-Oct 2017, has been republished for Nonprofit Quarterly with minor updates.
DURING THE RECENT STREET FIGHT to save the Affordable Care Act (ACA), thousands of individuals and organizations took to the halls of Congress, town meetings and the streets to protect their access to health care. They showed up in the thousands across the country to speak out against its repeal.
Individual ACA advocates who lobbied their elected officials did not worry about legally engaging in such activities because since 1789, people have enjoyed the First Amendment right to petition the government for a redress of grievances.
Charitable organizations, however, do not automatically enjoy that same protection. In fact, many organizations have steered clear of any activity that even faintly resembles lobbying for fear of violating their tax-exempt status. Given the emboldened actions of right-wing forces, however, whether they be white supremacist marches or the repeal of DACA, many charitable organizations may feel they can no longer stay away from these activities when their clients, supporters and donors stand to lose access to services, programs or their basic human rights. They may find more reasons to lobby in order to maintain, protect or promote government programs that impact their base, or to prevent other programs from being initiated. Unfortunately, organizations may not know how to engage in direct or grassroots lobbying without jeopardizing their tax status.
But nonprofit organizations certainly can. Before I describe the process, first, let’s define the terms. According to the Internal Revenue Service, direct lobbying refers to attempts to influence a legislative body through communication with a member or employee of a legislative body or with a government official who participates in formulating legislation. Grassroots lobbying refers to attempts to influence legislation by attempting to affect the opinion of the public with respect to the legislation and encouraging the audience to take action with respect to the legislation.
In either case, the communications must refer to and reflect a view on the legislation. If a nonprofit organization does not know if the IRS would consider its communication lobbying, then it can follow the nonprofit Alliance for Justice’s easy-to-use flowchart.
Once an organization has determined the IRS would consider its communication lobbying, what should it do next?
Let’s start with the laws guiding 501(c)(3)s. Again, according to Alliance for Justice, these organizations can engage in nonpartisan electoral activities only—either by direct lobbying or by grassroots lobbying—but cannot support or oppose candidates for public office. 501(c)(4) organizations and labor unions, known as social welfare organizations, may be openly partisan as long as doing so is not their primary activity.
501(c)(3) organizations however, can influence actions by executive, judicial or administrative bodies. According to the IRS, organizations can “involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.”
These options provide many legal ways to advocate for clients, supporters and donors that don’t fall under the category of lobbying and are legally permissible activities for a (c)(3) organization.
The IRS also says a (c )(3) organization can engage in some lobbying described but not too much without risking loss of tax
MANY CHARITABLE ORGANIZATIONS MAY FEEL THEY CAN NO LONGER STAY AWAY FROM THESE ACTIVITIES WHEN THEIR CLIENTS, SUPPORTERS AND DONORS STAND TO LOSE ACCESS TO SERVICES, PROGRAMS OR THEIR BASIC HUMAN RIGHTS.
exempt status. So how much is too much? Who gets to decide the appropriate level of lobbying?
The IRS provides answers to both. “Whether an organization’s attempts to influence legislation, i.e., lobbying, constitutes a substantial part of its overall activities is determined on the basis of all the pertinent facts and circumstances in each case. The IRS considers a variety of factors, including the time devoted (by both compensated and volunteer workers) and the expenditures devoted by the organization to the activity, when determining whether the lobbying activity is substantial.”
If the IRS determines an organization conducts excessive lobbying in any taxable year, the organization may lose its tax-exempt status, which will result in all of its income subject to tax—a prospect any nonprofit would want to avoid. Plus, the IRS could assess a tax equal to fine percent of the lobbying expenditures for the year against the organization managers for “knowing that the expenditures would likely result in the loss of tax-exempt status. “Obviously, organizations will want to avoid that determination of excessive lobbying.
Organizations can avoid these pitfalls in two different ways— by taking the 501(h) election known as the expenditure test, which provides “an alternative method for measuring lobbying activity” or by forming a separate 501(c)(4) organization defined by the IRS as “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.”
“The U.S. congress voted to allow nonprofits to lobby twice. The second time they passed a law allowing organizations to take a 501(h) election, which gives them very, very clear guidelines on what is and isn’t lobbying and what to do,” said Marj Plumb, chief strategist, policy advocacy and training at the Women’s Foundation of California. “It’s that clear.”
The IRS reports that by choosing to take the (h) election, “the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided its expenditures, related to such activity, do not normally exceed an amount specified in section 4911. This limit is generally based upon the size of the organization and may not exceed $1,000,000, as indicated in the table below.”
|If the amount of exempt purpose|
|Lobbying nontaxable amount is:|
|≤ $500,000||20% of the exempt purpose expenditures|
|>$500,00 but ≤ $1,000,000||$100,000 plus 15% of the excess of exempt purpose expenditures over $500,000|
|> $1,000,000 but ≤ $1,500,000||$175,000 plus 10% of the excess of exempt purpose expenditures over $1,000,000|
|>$1,500,000 but ≤ $17,000,000||$225,000 plus 5% of the exempt purpose expenditures over $1,500,000|
For organizations that want more information before deciding whether to take the (h) election, Alliance for Justice provides help in two ways: 1) through its workshops and trainings scheduled around the country1, and 2) through its one-on-one technical assistance over the phone or on email2.
If an organization chooses to hold an (h) election, it will need a bookkeeper and an accountant to keep track of the time spent and expenses in order to report them accurately, completely and annually on the 990 by using IRS form 5768.
“If you don’t tell your bookkeeper, they will say (on the 990) they’re not lobbying. The risk is not reporting when you’re doing it,” answered Plumb about the biggest pitfall for nonprofits.
“You’re very visible with your lobbying and if you don’t report it, your adversary can use that against you.”
When recording time spent and expenses, no need to reinvent the wheel, because again the folks at Alliance for Justice provide you with all of the tools.3
Additionally, organizations that take the (h) election do not need to count unpaid volunteer time because the expenditure test does not include a limit on the amount of unpaid lobbying time performed by volunteers.
The NEO Law Group noted, “An electing charity can mobilize a force of 1,000 volunteers to advocate on a specific piece of legislation and all of the volunteer activity may not count against the charity’s lobbying limits.”4
“It’s really important to have all the options on the table and wield this political muscle to leverage elected officials and decision makers,” added Janice Li, advocacy director for the San Francisco Bicycle Coalition. “Whether you use it or not, it’s really important to have those options available.”
If an (h) election won’t provide enough organizational room for lobbying, an organization could decide to form a 501(c)(4).5 Forming a separate (c)(4) organization may take more time, money and resources than an organization wants to spend. Nevertheless, the option remains as one more way to legally participate in direct or grassroots lobbying.
If lobbying seems like the right advocacy approach, take a quick look at Bolder Advocacy’s two-and-a-half-page document titled “Amplify Your Voice” to chart your course, especially at this time when so many programs and policies directly affecting clients, supporters and donors need protecting.
2 Submit your question at http://bit.ly/1GJ7L23
3 Keeping Track: A Guide to Record Keeping for Advocacy Charities by John Pomeranz,
available at bolderadvocacy.org/wp-content/uploads/2012/03/Keeping_Track.pdf
4 Starting a Nonprofit: The Value of Making the 501(h) Lobbying Election at nonprofitlawblog.
5 For a how-to guide, check out Alliance for Justice’s free downloadable report, Considering
Starting a 501(c)4? Case Studies, which may help answer questions about purpose, scope,
funding, perception, timing, and legal compliance.